Developers Look Four Years Down The Road For Tenants
Cushman & Wakefield’s Q2 report also reports that the current bright spot in the District is the CBD Class B market, which has tightened as space has been renovated into Class A.
WASHINGTON, DC–The overarching theme of the District’s office market has been, for some time, how will it absorb the large pipeline of new supply that is coming online. Cushman & Wakefield has added a startling datapoint to this conversation: in some cases developers are looking as much as four years down the road to find tenants capable of paying the high rent and taking down large blocks of space in the market.
Already the new and renovated supply that is coming online in the District is putting upward pressure on vacancy. Right now most of the new buildings competing for top of market tenants are in the CBD, which has seen 1.9 million square feet delivered so far in 2018 and has another 1.3 million square feet under construction, according to C&W,
So far the first wave of deliveries at 1100 15th St., NW, 2112 Pennsylvania Ave., NW and 2001 K St., NW have fared well, coming online at a combined 78% leased. However the next wave of 2018 and 2019 deliveries are currently 38% leased, C&W noted. Conditions are not quite as bad in the East End, which has not had any recent deliveries but there is 1.6 million under construction that is 65% leased. In addition, C&W said, core CBD and East End submarkets are getting competition from projects in other submarkets like Capitol Crossing in Capitol Hill and the Wharf in Southwest “unlike we’ve seen before.”
The Bright Spot
C&W said the current bright spot is the CBD Class B market, which has a direct vacancy rate of only 6% — among the lowest in the region. But change is coming to this sector of the office market as well, as a significant number of move-outs from organizations including the Urban Institute, Akin Gump, and The National Association of Broadcasters will bring just under one million square feet of available space to market over the next 24 months. It writes:
While there is a good chance that several of the buildings these tenants are moving out of might be renovated into space that competes with the Class A market, there are likely to be more large blocks to service bigger Class B users.